Jobs, Jobs, Jobs | March 8th 2015

State of the Stock Market Analysis for the Week Ending March 8th, 2015 (Jobs, Jobs, Jobs 03-08-2015)

Wait a minute. The bulls were looking for a strong jobs report in order to validate February’s big run up in equity prices, and that was exactly what we got. Friday’s government jobs report showed that an impressive 295,000 new jobs were created in February versus the expected 238,000, and that number should have rallied the stock market. It was a big improvement from January’s 239,000, and one would have thought that all was well in the U.S. economy. The unemployment rate even dipped to 5.5% from January’s 5.7% rate, but that was not enough to prevent a Friday selloff that left the stock market down for the day and for the week.

The problem with the jobs report was that it was too good. The immediate take was that a strong jobs number like we saw on Friday gives the Federal Reserve a “green light” to stay on course for rate hikes sooner rather than later. A down Friday market is a rough way to close out a week, but that is what unfolded following the strong jobs numbers. Stocks closed out a moderately rough five days with weekly losses of 1.5% for the Dow, 0.7% for the Nasdaq and 1.6% for the S&P 500. That was not a bad week given February’s run-up, but it was a week to reflect upon what might happen if we keep seeing an improving economic landscape.

When major indices are at all-time highs, they are essentially pricing in “perfection.” We all know that economies are rarely perfect, but the February optimism in stock levels was pricing in something that might not play out as well as investors expect. It is strange to think that strong economic numbers might actually derail a bull market run, but that is what we saw on Friday. Economic numbers have been mixed of late, so seeing a booming jobs report number changed the game a lot. The Fed has been hinting and preparing for a rate hike (or two or three), and suddenly, the Fed has numbers to support at least a small hike in rates.

The problem with this scenario is that it has been a long, long time since the stock and bond markets have even had to consider interest rate hikes. The near-zero interest rates following the Lehman collapse and subsequent recession back in 2008-2009 somehow worked. The economy seems somewhat vibrant now, and the thought from the Fed is that it might finally be time for interest rates to edge back to “normal” levels. That term “normalcy” sends shivers down the spines of stock and bond investors because the Fed does not act in “knee-jerk” responses. If the Fed raises rates a quarter of a point and stocks crater, it is not the type of institution that will quickly cut rates back to zero in order to support the stock market.

But the major indices are still near all-time highs (or a 15-year high in the case of the Nasdaq), and that is a big plus. Whatever the Fed decides to do later this year or next year will not likely affect the broader economy or, hopefully, the stock market as well. Having an economy so dependent upon the Fed is probably not all that healthy, so maybe we can break free of so much worry and concern about the Fed, the ECB or all of the world’s central banks. It has been quite a run since the March 2009 low of 666 in the S&P 500, so maybe the U.S. economy is ready, willing and able to stand on its own. We shall see, but for the time being, the economy is far from the teetering mess we saw six years ago.

This is the anniversary week of the Nasdaq’s old, all-time high in March of 2000. It has taken the Nasdaq 15 years to get back above the 5,000 level, and interestingly enough, it stalled out this week. Former tech-maven Mark Cuban chimed in this past week saying that he saw just as big of a bubble now as back then in tech, so maybe his comments weighed on tech sentiment this past week. Cuban sees more of a “private equity” bubble in tech these days, and his comments resonate. After all, Cuban sold out to Yahoo (YHOO) at precisely the right time, and he now owns the Dallas Maverick basketball team (how is that for diversification!).

But Cuban’s comments are worth noting. He has seen the extremes, and his comments are worth keeping in mind right now. Another sign of bizarre extremes occurred this week when Dow Jones announced that Apple (AAPL) would be added to the Dow Jones industrial Average in mid-March. Apple will replace AT&T (T), and the reasoning was that the Dow would need more tech exposure following the Visa (V) four-for-one split. Whatever the reason, it just seems strange to add Apple to the Dow AFTER Apple has become so gigantic. Why didn’t the geniuses at the Dow add Apple five or ten years ago?

We all remember that Dow Jones added Microsoft (MSFT) and Intel (INTC) to the index just as the tech market was peaking in 1999, and neither stock ever saw all-time high stock prices again. This latest move by Dow Jones could be a curse on Apple, and the Apple news has many tech watchers scratching their heads. Could this mean that Apple’s time in the sun is done? Who knows, but it does seem peculiar to add such an innovative, red-hot company to a stodgy, old index AFTER Apple has achieved a market capitalization of $730 billion! These types of decisions are historically watershed moments, so stay tuned, and check the 15-year charts of Microsoft and Intel since being added to the Dow. Yikes!

So on we roll into 2015, and things are looking bullish. The global shock index of “wild cards” has diminished dramatically. Greece is calm, Ukraine is out of the news and oil prices have stabilized at around $50 per barrel. Europe is fairly calm, and Mario Draghi and the ECB are buying bonds and flooding the EU with liquidity. It seems as though “all is well,” but we all know that when “all is well” things can inevitably go wrong. For the time being, however, financial markets are stable, and U.S. stocks are still holding steady near their recent highs, and looking for a reason to head higher.

That said, the Gorilla wishes each and all a relaxing and restful weekend. Spring is on the way, and it is a great time of year to regroup and get ready for the rest of 2015. College basketball and the big tournament (the Dance) are right around the corner, and it is a great time of year. We will see how this economy and stock market play out, and we should get some clues as to what the Fed has planned for us soon. Again, enjoy the weekend, and we will be back in action on Monday.